1/15/13

I know the numerator for calculating break-even point is Fixed Cost, but is the denominator gross margin or contribution margin? I've seen it done both ways and am very confused which one to use.

gross margin=Revenue-Variable Costs and contribution margin=Price-Cost.

Which one is it?

Comments (5)

1/15/13

Repeat after me:

When the unit sales price is unknown, to find the break-even REVENUE we do the following:

=Fixed costs / Contribution margin

The WSO Advantage - Management Consulting

Consulting Case Interview Guide

Real Cases Revealed from Top Firms.

GMAT Prep Promo

$333 Off GMAT Training.

Resume Help from Consulting Pros

Land More MBB Interviews.

Find Your Consulting Mentor

Realistic Mock Case Interviews.

1/15/13

companion:
Repeat after me:

When the unit sales price is unknown, to find the break-even REVENUE we do the following:

=Fixed costs / Contribution margin


When the unit sales price is unknown, to find the break-even REVENUE we do the following:

=Fixed costs / Contribution margin

1/15/13

companion:
Repeat after me:

When the unit sales price is unknown, to find the break-even REVENUE we do the following:

=Fixed costs / Contribution margin

I'm not following. If you don't know price, how would you calculate contribution margin? Seeing that contribution margin=units sales price-unit variable cost.

1/15/13

companion:
Repeat after me:

When the unit sales price is unknown, to find the break-even REVENUE we do the following:

=Fixed costs / Contribution margin


False.

When you do not know what unit selling price is, you can calculate the amount of revenue needed to break event by: FC/CM Ratio

CM Ratio =/= CM

1/15/13

"If it were easy, everyone would do it"

Add a Comment
WallStreet Prep Master Financial Modeling